Not surprisingly, the embedded environmental costs are significant and represent real financial risks and strategic opportunities for companies. Our research found the direct and supply chain environmental costs of S&P 500 retail companies totalled almost $22 billion. That is a lot, but the costs of the food and beverage companies are more than three times higher at $69 billion. For food and beverage companies the key impacts were water use ($38 million), land and water pollutants ($12m), greenhouse gas (GHG) emissions ($10m) and other air pollutants ($8m). For retailers, the most significant impact was also water use ($8m), followed by GHG emissions ($7m).

How are companies paying for their environmental costs?

Droughts and pollution hot spots are causing food and beverage and retail companies to internalize upstream environmental costs. During the 2012 U.S. drought, water shortages and high temperatures destroyed field crops, driving up corn and soybean costs. This has led to increases in prices for other food supplies such as animal feed. Knock-on effects continue to ripple throughout supply chains and the impact on food prices such as meats, dairy and eggs is expected to be felt into 2013 as companies pass on higher input costs to consumers.